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Endowment plans are usually expensive products that don't provide clarity on the charges & expenses they levy

I am a bank employee with a monthly income of ₹40,000. I'm able to save ₹10,000 of my salary. I current have a 20-year LIC Jeevan Anand policy with an annual premium of ₹30,000. My annual PPF contribution is of ₹24,000. I want to invest for my 2-year-old daughter's education (12 years) and marriage (20 years). Which funds should I invest in?
-Mohit Sharma

Existing: You have invested in LIC's Jeevan Anand which is a combination of endowment and whole life plan that promises to pay a maturity benefit on survival at maturity. It also pays an additional sum to the nominee on death thereafter. Endowment plans are silent on their charges and expenses. These products are usually far more expensive and offer lower returns than ULIPs as you do not even come to know how much of your money is being used towards insurance and how much towards investment. Moreover, annual bonus declared by a 20 year policy has never been more than 3-4 per cent since 2004-05 which is not more than savings bank interest. This is a very low return, which does not even beat inflation. A bank deposit would be a better option for returns with high safety.

Recommendation: You did not mention the date of buying the policy. As a rule, this policy can be surrendered after it has been in force for continuous first three years. Minimum guaranteed surrender value is 30 per cent of all basic premiums paid till date excluding the first year's premium. This means that if you surrender, you may receive back 30 per cent of the premiums you paid after the first year. The insurer may however pay a higher surrender value which you need to check from the insurer. If possible, surrender this policy. Before surrendering, buy a term cover for an adequate sum which must be sufficient to take care of all your liabilities and your family's needs in case something happens to you.

Build an emergency fund by keeping 3 to 6 months expenses in a FD linked to your savings account which will be accessible anytime. For your daughter's education and marriage you have a long time in hand.

You have not specified how much you may spend on your daughter's education and marriage. But a back of the envelope calculation suggests that your current savings may not be sufficient to fund the goal. Supposing you build up two separate funds for the two goals, investing ₹2500/month in one equity fund and ₹1000/month in another, the following corpus is what you will get. Investing ₹2500/month for the next 10 years in a fund which earns 15 % per annum will give you ₹6.5 lakh at maturity. Investing ₹1000/month for the next 18 years will give you ₹9.7 lakh at the end of the period. While this may appear sufficient at today's prices don't forget that inflation will expand the sums you need for your daughter's marriage as well as education in 10-20 years' time. Therefore you need to raise your savings along with your income.

Equity funds which appear good choices for you, given your long horizon and high return requirements, are funds such as ICICI Pru Discovery, HDFC Midcap Opportunities and Franklin Smaller Companies. Make sure you use the systematic investment route as these are midcap funds and can be quite volatile. You can also use the 'Fund Selector' tool on our website to select well rated funds. Continue with your PPF investment.



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